A non profit making entity is defined as a non-profit seeking entity which does not

usually engaged in trading activities, but engages in rendering services to its

members and society. Non profit organisation are established for the purpose of
rendering service. They are not expected to earn profit, but organised mainly for
social, educational, religious or charitable purpose. Examples of Non-Profit making
organizations are Football clubs, Save our Souls (SOS),UNICEF and WHO.

Non profit making organizations use receipts and payments accounts and income
and expenditure accounts. They only use these because they are not concerned with
profits but their cash flow thats how they are different with profit oriented
organisation.

Profit -Oriented Organisation Non- Profit Oriented Organisation

1 Trading and Profit and Loss Account 1 Income and Expenditure Account
2 Net Profit 2 Surplus of Inocme over Expenditure
3 Net Loss 3 Excess of Expenditure over Income

Receipt and payment account is a statement prepared at the end of an accounting

year giving a summary of all receipts and payments recorded in cash book.

It is debited with all items of receipts and credited with all items of
Payments.

Both revenue and Capital items are recorded in it.

It records all receipts and payments relating to previous, current and

subsequent years.

Income and expenditure account is a nominal account prepared by a non profit

seeking organisation, in order to ascertain the surplus or deficit by recording revenue
items of particular period.

All expenses and losses are debited and all incomes and gains are credited to
it.

The surplus or deficit is transferred to Capital Fund

Difference between receipt and payment A/c and Income & Expenditure
account

Receipt & Payment Account Income & Expenditure A/c

Entries are not made in date wise Entries are not made in date wise.

All entries are made in classified All entries are made in details.
form.

This account is opened by non This account is opened in both

trading concern only. trading and non trading concerns.
 Entrance Fees: The fee charged for admitting a person as a member in an institution is called
admission fee or entrance fee.

Since it is paid by the member only once it is a Capital item.

Since the institution receives it every year when new admission take place it is treated as
Revenue item.

Subscription:- It should be credited to Income and Expenditure Account.

Subscription collected for any special purpose, it should be shown as a separate fund
on liability side of balance sheet.

Donation: If it is for general purpose, it should be credited to income and

expenditure account. If it is for any special purpose, it should be shown as a separate
fund on liability side of balance sheet.

Legacy: It is the amount received by the non profit organisation on the death of a
person as per his will.

If it is a large amount, it is capitalised

If it is small amount, it should be credited to Income and Expenditure

Account.
 Life membership fees: Lump sum amount received from a member- it is usually credited to
capital fund account.

Sale of old newspaper, sale of sports materials- Recurring in nature. it is usually credited to
Income and Expenditure Account.

Sale of old asset: The book value of asset sold is deducted from asset in the balance sheet.
Any profit or loss on such sales should be transferred to income and expenditure account.

Procedure in the preparation of balance sheet

Preparation of statement of affairs To find out capital fund at the beginning.

Surplus, if any, added to capital fund. Deficit should be deducted from capital fund in the
closing balance sheet.

Outstanding liabilities (income received in advance, outstanding expenses) as on the closing

date be shown on the liability side.

Outstanding assets (income receivable, prepaid expenses) must be shown on the asset side.

The balance of receipt and payment account (cash & Bank) must be shown on the assets
side.

Bank balance (Cr.) should be shown on the liability side of balance sheet.

Assets in existence at the beginning should be adjusted for additions, disposal. if any, and
also for depreciation.

New assets acquired during the year should be shown on the assets side of balance sheet.

Any special collection of non recurring nature should be shown on the liability side of the
closing balance sheet.

Example
The UB Running Club
Receipts and Payments Account for the year ended 31st December 2005
P P
Opening Bank Balance 800 Groundsman wages 600
Hall Charges 1200
Total Subscriptions 5000 Spots ground rentals 500
Gate Takings 2500 Committee Expenses 300
Rent Received 800 Stationery Costs 150
Bank Balance c/f 6350
9100 9100
 Working Example Question

On the 1st January 2009 Gaborone Golf Club had the following assets

Cash at Bank P200,Snack Bar Stocks P800 and Club house buildings P12 500.

During the year to 31st December 2009 the club received and paid the following amounts;

Recepits Payments
Subscriptions 2009 3500 Rant and Rates 1500
Subscriptions 2010 380 Extention to Club House 8000
Snack Bar income 6000 Snack Bar Purchases 3750
Visitors Fees 650 Secretarial Expenses 240
Loan from Bank 5500 Interest on Loan 260
Competition Fees 820 Snack Bar Expenses 600
Games Equipment 2000

Notes . The snack bar stock at 31st December 2009 was P900,

The games equipment should be depreciated by 20%

Prepare;

1) Snack Bar Profit or Loss

2) Income and Expenditure statement for the period ended 31st Decemeber 2009

3) Prepare the Balance Sheet as at 31st December 2009

HOW TO DO IT

1 Start with the IEA and correctly copy the title.

2 Step 2 List the relevant incomes from question, the ones that would normally
go into the P&L Ac
3 Step 3 Pick each income, check from the question if it requires adjustment, if not
enter the Figure in IEA if reference make required adjustment and enter
the figure.
4 Step 4 Determine the Snack bar profit.

5 Step 5 Repeat step 3 with expenditure and conclude the IEA.

WORKED EXAMPLE ANSWER

Income and Expenditure

Account for the year ended 31st March 2009

Recepits
Subscriptions 2009 3500
Snack Bar income 1750
Visitors Fees 650
Competition Fees 820
6720
Rant and Rates 1500
Secretarial Expenses 240
Interest on Loan 260
Depreciation on Games Equipment 400
2400
Surplus of Income over Expenditure 4320